Non-financial Measures Research Articles

Total Quality Management and Organizational Performance: the Role of Performance Measurement System

Escalation in globalization, information and advancement in manufacturing technologies have constantly contribute to the increase in demand and in the competitive manufacturing business environment. Align with the challenges facing the companies, there is a need for companies to devise relevant strategies to help them cope with the changes and sustain their competitiveness. Total Quality Management (TQM) is a management philosophy and strategy that can help improve the quality of product and production processes. Prior research highlights the importance of implementing performance measurement system (PMS) in assisting the implementation of TQM practices. Incorporating contingency theory and socio-technical system theory, this study aims to examine the relationship between TQM practices and organisational performance and to determine the influence of PMS use in the relationship. Data were collected using self-administered questionnaire survey on a sample of Malaysian manufacturing companies. Our results support the view that more extensive PMS benefits performance as we find that, firms implementing TQM with more advanced PMS especially those that include financial and nonfinancial measures have higher performance. The results revealed that the relationship is more significant for companies using more advanced PMS compared to companies that used traditional PMS.

Getting compensation right - The choice of performance measures in CEO bonus contracts and earnings management

This paper examines whether the choice of performance measures in CEO bonus compensation contracts is associated with earnings management. From a sample of FTSE350 Index firms over the period of 2005–2014, we investigate the relationship between earnings management, through discretionary accruals and real activities management, and (1) the use of and extent of reliance on financial and non-financial performance measures in CEO bonus contracts; and (2) the use of long-term and short-term measures in CEO bonus contracts. We find less income-increasing manipulation through discretionary accruals and expenses when non-financial performance measures (NFPMs) are used alongside financial performance measures (FPMs) and when the NFPMs are used to a larger extent than FPMs. Furthermore, we find less discretionary accruals when long-term performance measures are used. This implies that non-financial and long-term measures encourage executives to work towards the long-term success of the company rather than their own short-term reward.

Balancing social and political strategies in emerging markets: Evidence from India

AbstractThis article explores the substitution and complementary effects between political and social strategies on firm performance in the context of an emerging market (EM). Using in‐depth, historical case‐study approach, the article investigates how companies integrate political and social resources in this market. Corporate performance includes traditional measures, such as accounting performance and nonfinancial measures like the ease of doing business. The study finds that social strategies are stronger enablers of firm long‐term performance than political strategies. The latter have a short‐term impact on performance, but their success over time is limited. The main drawback of reliance on political resources in EMs is the lack of political stability, fragmented polity, and weak political coalitions. We identify rather limited evidence of firms using these two strategies as complements. Thus, we suggest that firms should employ both these strategies in the EM.

Accounting and passionate interests: The case of a Swedish football club

This paper seeks to (re)theorise the interpenetration of accounting and emotionality. Whilst researchers have devoted increasing attention to the effects of emotions, we argue that extant research is problematic in two ways. First, emotions have been treated as an intrapsychological phenomenon rather than an inter- or relational phenomenon. Second, current work focusses on how accounting produces emotions, failing to consider how emotions inform accounting. To address these two shortcomings, we mobilise the economic anthropology of Tarde (1902), and the subsequent work by Latour and Lépinay (2009) and Latour (2010; 2013), to argue that all interests are inherently 'passionate interests'; they are matters that 'hook' actors emotionally. This theoretical lens is used to narrate a field study considering the (changing) passionate interests and their connections to accounting in an elite Swedish football club. Specifically, we analyse a nexus of four passionate interests that 'hook' many (in different ways and with different degrees of intensity) – violent behaviour, winning the league, preserving the club family, and derbies. More generally, this paper argues that: first, organisations are a nexus of passionate interests; second, such interests recursively inform the doing of accounting; third, passionate interests are quantifiable via a range of financial and non-financial performance measures, enabling the construction and coordination of collectives; and, fourth, some performance measures matter more than others when (a) they are simple and unambiguous, (b) grounded in enduring passionate interests with deep historical roots that tie together members of proximate communities, and (c) travel beyond organisations and penetrate diverse arenas of everyday life, reproducing the emotive intensity of passionate interests.

Do Auditors and Audit Committees Lower Fraud Risk by Constraining Inconsistencies between Financial and Nonfinancial Measures?

SUMMARY Prior research finds that companies committing fraud exhibit large inconsistencies between reported revenue growth and growth in revenue-related nonfinancial measures (e.g., number of stores, employees, patents). Prior research also suggests that auditors, on average, are not adept at identifying and constraining these differences. This article summarizes a recent study by Brazel and Schmidt (2018) that examines whether certain auditors and audit committees are able to lower fraud risk by constraining inconsistencies between financial and related nonfinancial measures (NFMs). This practitioner summary first summarizes the motivation for the study, then discusses the methods used, explains the results, and concludes with a discussion of the study's implications. Brazel and Schmidt (2018) find that auditors with greater industry expertise and tenure, and audit committee chairs with greater tenure are less likely to be associated with companies that exhibit large inconsistencies between their reported revenue growth and related NFMs (higher fraud risk). Surprisingly, they observe that audit committees with industry expert chairs are more likely to be associated with large inconsistencies than audit committees without industry expert chairs. Overall, Brazel and Schmidt (2018) conclude that the audit process can constrain fraud risk, but not all forms of audit committee expertise may be beneficial.

The Importance of Task Complexity When Rewarding Nonfinancial Performance

ABSTRACT In this study, I investigate whether the effectiveness of rewarding performance of nonfinancial measures varies across levels of task complexity. I use a multi-period experiment where participants are assigned a highly or moderately complex task and an incentive contract where only financial measures or both financial and nonfinancial measures are rewarded. I find that in a moderately complex task, individuals perform better when only the financial measures are rewarded in the incentive contract. However, in a highly complex task, individuals perform better when both financial and nonfinancial measures are rewarded. Collectively, the results identify task complexity as an important task characteristic that impacts the effectiveness of incentives on nonfinancial measures of performance.

University dean personal characteristics and use of management control systems and performance measures

ABSTRACTDrawing on upper echelon theory, we investigate whether university deans’ personal characteristics, including age, sex, educational background, and tenure are associated with their use of university management control systems (MCS), financial performance measures, and non-financial performance measures. We surveyed the dean of every faculty across Australia’s 39 public universities. Our results indicate that deans’ personal characteristics are associated with the emphasis they place on financial and non-financial performance measures and the manner in which they use MCS. Given the decision-making powers of deans in the corporatised university, this differing emphasis on performance measures and varying use of MCS is likely to impact university outcomes. We offer suggestions as to how university MCS could be designed and performance measures presented to take into account the particular characteristics of deans to enhance university outcomes.

Health Investments & Human Capital: Enhancing Entrepreneur Well-Being in Low-Resource Environments

We investigate connections between human capital and entrepreneurial value creation in low-resource markets and consider health as an understudied resource in such environments. We extend conservation of resources theory to this context and suggest mechanisms by which entrepreneurial investments in health- related human capital lead to increases in financial and non- financial well-being. Using longitudinal data from over 500 low- income entrepreneurs in rural India who would benefit from vision correction, we compared changes in well-being between those who did and did not purchase correctional glasses. Entrepreneurs who invested in vision correction saw increases in income and productivity, in the ability to solve problems and cope with challenges, and in levels of independence. These improvements stem from modest investments (less than USD5) in health-related human capital. Results connect low-cost health-based interventions to multiple dimensions of well-being in low-resource markets and signal human capital investment opportunities beyond education and training. This work builds the literature on entrepreneurship by including financial and non-financial measures of success that, together, may more fully capture the nature of entrepreneurial value creation in low-resource environments.

Measuring the environmental performance of green SRI funds: A DEA approach

In this paper, we tackle the issue of evaluating an important class of green investing that integrate classical financial tasks with some environmental issues: the so-called green mutual funds.In order to do this, we first propose three measures of environmental sustainability which may give financial agents information on the greenity of their investments. These alternative indicators could serve as an overall measure of environmental sustainability and overcome the drawback that limits the evaluation of green investments to the measurement of CO2 emissions while often more than one environmental aspects may be considered.Secondly, we propose some models aimed at evaluating the performance of green mutual funds by taking into account the proposed environmental measures as well as some classical financial indicators. The analysis is carried out in a Data Envelopment Analysis (DEA) framework, since DEA models can consider strategic non-financial objective measures in addition to traditional financial metrics in order to give a more balanced view of socially responsible investments (SRI). The presented models include indicators of environmental sustainability in different ways, either by penalizing a high environmental consumption or by rewarding an environmental saving entailed by a low consumption. The environmental measures and the models proposed are applied to a set of European green funds in the periods 2012–2015 and 2010–2015 to conduct an extensive analysis.

Problems of Management Accounting Implementation: The Case of Balanced Scorecard Implementation within Jordanian Commercial Banks

This study aimed to find the status of Balanced Scorecard implementation in Jordanian Commercial Banks and the most barriers and problems of BSC implementation in these banks. The results indicated that the Jordanian banks used a set of financial and non-financial performance measures which are similar and consistent with the Balanced Scorecard dimensions. The fully implementation rate was 30.7% of the Jordanian Commercial Banks. The results from the semi-structured interviews shows that the barriers and problems of BSC implementation in these banks are social issues such as lack of Top management support and organizational culture, technical issues such as data gathering and automation, political issues such as resistance from employees, a lack of software packages, and employees turnover. Conceptual issues also mentioned by the interviewed banks as a problem to the implantation of BSC such as the misunderstandings about the relationship between the organizational strategy and the BSC scorecard, and BSC is a “general model” which may be not easy to fit any bank.

Entrepreneurial orientation

PurposeScholarship in the entrepreneurship and marketing literatures has helped advance thinking about how health care organizations create value for companies and consumers. However, there is an ongoing need for empirical research; hence, the purpose of this paper is to examine how entrepreneurial orientation and customer orientation influence healthcare (retail pharmacy) industry performance.Design/methodology/approachUsing a sample of the US retail pharmacies, the study applies partial least squares structural equation modeling to identify the direct and indirect effects of the entrepreneurial orientation constructs on company performance. The study also includes importance–performance analyses to prioritize for managers which orientations, dimensions and respective manifest items merit the most critical attention as contributors to pharmacy performance.FindingsWe find that the entrepreneurial orientation has a significant impact on customer orientation and company effectiveness. We also find that three dimensions – innovation, risk-taking, and proactiveness – exhibit stronger importance and performance than autonomy and competitive aggressiveness.Research limitations/implicationsWhile the present study employs data from firms of various sizes, it is limited to firms in the pharmacy industry. Although this study included established EO measures, one of the risk taking items was dropped from the final analysis. In certain research contexts, this result may or may not be consequential. Finally, this study employed nonfinancial measures for measuring performance. Using such measures is not uncommon and can offer insightful linkages to long-term organizational strategies in ways not afforded by conventional financial measures (Ittner and Larcker 2000); however, future research should, if possible, aim to capture financial and nonfinancial data.Practical implicationsIn the dynamic healthcare environment, entrepreneurial pharmacies that have the ability to innovate, take risks and be proactive can provide superior customer orientation and hence better performance.Social implicationsHealth care industry in general and pharmacies in particular have to be entrepreneurial to meet customer needs and hence the wellbeing of the society With the aging population and growth of complex diseases, pharmacies can provide better access to care delivery if they have entrepreneurial orientation.Originality/valueIn this study, partial least square modeling technique along with importance performance analysis was adopted for first time in this literature to identify key factors that contribute to EO. The findings will aid pharmacy managers to focus their initiatives on the three key dimensions to succeed in their retail pharmacy business.

The effects of measurement basis and slack benefits on honesty in budget reporting

In this study, we experimentally investigate how managers' budget reporting behavior is influenced by two important features of the budgeting system: the measurement basis used in budget preparation (i.e., whether managers make budget reports in financial or nonfinancial measures) and managers' slack benefits in budget execution (i.e., whether managers benefit from budgetary slack directly or through an intermediate activity). While prior research suggests that moral self-regulation helps promote honest behavior, we predict that a financial measurement basis undermines moral self-regulation by strengthening the manager's desire to advance self-interest and that the absence of direct slack benefits undermines moral self-regulation by making misreporting more justifiable. We also predict that the effects of these two budgetary features on honesty are non-additive, due to the manager's diminishing marginal net utility from misreporting. Experimental results are consistent with our predictions. The implications of our findings for management accounting theory and practice are discussed.

Effects of Consumer Demand, Product Lifetime, and Substitution Ratio on Perishable Inventory Management

With the intensification of global population, food security is a big concern. Food waste stems from inappropriate inventory management. Companies offer a wide range of products to capture more sales, yet this increases inventories and complicates inventory management. Management challenges are worsened by three factors: uncertain consumer demand, product lifetimes, and consumer substitution among the product range. This research aims to understand the effects of these factors on inventory performance. The analytic hierarchy process (AHP) method was used to weight the importance of each of the non-financial performance measures from the simulation results and data envelopment analysis (DEA) was used to rank and evaluate the scenarios. Then, the most favorable scenario or replenishment policy, which had the lowest DEA efficiency score, was chosen. The results show that when the substitution ratio is greater, its interaction with consumer demand and product lifetime has mostly a small- or medium-sized effect on retailers’ performance, in contrast to relatively larger effects on the supplier. These findings show that suppliers’ performance is affected largely by the existence of the bullwhip effect in the model. Recommendations are provided for managers who are facing uncertainties of consumer demand, substitution, and product lifetime.

Contingency factors and complementary effects of adopting advanced manufacturing tools and managerial practices: Effects on organizational measurement systems and firms' performance

Anchoring its theoretical background in the concepts of contingency and complementary effects, while simultaneously answering calls for the improved integration of organizational theories and operations management, this work argues that contingency factors are antecedents for the adoption of advanced manufacturing tools (AMT) and managerial practices (AMP), as well as influencing the use of measurement systems in organizations, which has implications for firms' performance. Original data from a sample of over 200 Italian manufacturing firms provides the empirical basis for testing the research framework based on numerous hypotheses. A combination of anticipated and unexpected findings emerged: (i) overall, contingency factors (mainly organizational decentralization and environmental uncertainty) play an important role in the combined adoption of AMT and AMP, which in turn shape the measurement systems adopted by organizations; (ii) although both financial and non-financial measures were relevant for organizations overall, quality management-related practices were shown to play a central role in organizational competitiveness; (iii) unexpectedly, the correlation between organizational strategy and the adoption of AMT and AMP was not as strong as hypothesized a priori, and therefore deserves future investigation, constituting an important implication for future research.

What seems to matter in public policy and the health of informal caregivers? A cross-sectional study in 12 European countries.

In Europe, informal caregiving is frequent and is expected to grow. Caregiving has an impact on caregivers’ health, but its effect may vary according to the policies of support that are available to caregivers. The aim of this study was to assess the association between the policies of support to caregivers available in 12 European countries and the health of caregivers, considering separately the policies based on financial help and those based on training and other non- financial services. We used data from 13,507 caregivers from 12 European countries from the fifth wave of the Survey of Health, Ageing and Retirement in Europe (SHARE) to build a path model. Poor health among caregivers was associated with living in a family-based care country (β = 0.50; 95% CI = 0.42–0.59), and with an increased extent of caregiving (β = 0.18; 95% CI = 0.15–0.22). Non-financial support measures seem to have a larger protective impact (β = –0.33; 95% CI = –0.38 - –0.28) on the health of caregivers than do financial support measures (β = 0.03; 95% CI = 0.01–0.04), regardless of the gender of the caregiver. According to our results, the currently available policies of support associated with better health among caregivers are those that: 1) provide them with some free time, 2) help them to deal emotionally with caregiving, and 3) give them skills to both improve the care situation and to deal with it better.

Disclosure and Audit Implications of Nonfinancial Measures: A Teaching Case

SUMMARYThis case introduces students to nonfinancial measures (NFMs) and encourages thoughtful consideration and discourse surrounding their reporting and use by managers and auditors. NFMs are commonly reported by companies to provide increased transparency of operations and to more effectively describe performance. External parties such as analysts and auditors make use of NFMs in performing valuation assessments, fraud risk assessments, and substantive analytical procedures. In completing this case, students will be exposed to actual NFMs disclosed in SEC filings and employ Microsoft Excel knowledge to perform foundational analytical procedures. Students will also analyze how these NFMs link to the financial statements, as well as reflect upon the implications of NFMs for both internal and external users.

Do Auditors and Audit Committees Lower Fraud Risk by Constraining Inconsistencies between Financial and Nonfinancial Measures?

SUMMARY Prior research finds that companies committing fraud exhibit large inconsistencies between reported revenue growth and growth in revenue-related nonfinancial measures (e.g., number of stores, employees, patents). However, prior research also suggests that auditors, on average, are not adept at identifying and constraining these differences. This study investigates whether certain auditors and audit committees are able to lower fraud risk by constraining inconsistencies between financial and related nonfinancial measures (NFMs). For a sample of companies across a variety of industries, we find that auditors with greater industry expertise and tenure and audit committee chairs with greater tenure are less likely to be associated with companies that exhibit large inconsistencies between their reported revenue growth and related NFMs. Surprisingly, we observe that audit committees with industry expert chairs are more likely to be associated with large inconsistencies (higher fraud risk) than audit committees without industry expert chairs. JEL Classifications: M4.

ACCT3323: Strategic Management Accounting

These notes discuss four different accounting tools to manage an organisation’s strategy: budgets, incentive contracts, cost accounting, and the balanced scorecard. The first one, budgets, are a quantitative expression of a business plan for a specific period of time (p.184 in Horngren et al. 2012 or p.387 in Langfield- Smith et al. 2008). Budgets typically permeate the entire organisation and most employees collect information to put in the budget or they might even be directly responsible for managing a subset of the budget. Cost accounting is the domain of the accountants. Product cost calculations are a large input into the budgeting process but these cost calculations are also directly used to evaluate the viability and efficiency of investments, production lines, outsourcing decisions. When employees manage part of the budget and make decisions on how to implement the firm’s strategy, the headquarters will want to make sure that employees work in the best interest of the firm. Firms will introduce explicit and implicit incentive contracts to reward good behaviour and punish bad behaviour. Budgeting and costing aims to quantify all the information that goes into strategic decision making and strategy implementation. That does not mean that all business decisions are only driven by these figures. Managers often use their own experience and intuition to augment the quantitative information. The balanced scorecard tries to formalise the interplay between objective information and subjective knowledge by summarising the firm strategy in a limited set of causally linked financial and non-financial measures. While budgeting and costing are often seen as merely strategy implementation tools, the balanced scorecard also serves as a way to form and evaluate an organisation’s strategy. Nevertheless, a full balanced scorecard implementation requires careful planning. While the balanced scorecard for top management should be concise, more complexity is introduced when each lower level department needs its own balanced scorecard to aid in fulfilling its part of the overall strategy.

Influential variables in the profitability of hospital companies

Purpose: This study attempts to evidence the economic and financial health of Spanish hospital companies in the period 2008-2015 and discover the variables that explain their profitability for survival and the opportune performance of their assets during a period of technological revolution and austerity. Design/methodology: The study methodology consists of the short and long-term financial analysis of the companies in the study sample during the period 2008-2015, together with analysis is of their economic state, equity and treasury. To add value to the research, the profitability of the hospital companies has been explained in terms of the following independent variables: short-term solvency, debt, business size, legal form, GDP per capita, population density of and indicators of Corporate Social Responsibility. Findings: In the analyzed period, the economic and financial health of hospital companies is characterized by acceptable liquidity and indebtedness that significantly influence its profitability; this is accompanied by good financial and expenditure management, though it is necessary to improve the management of assets. Research limitations/implications: It was not possible to obtain data for 2016, as it was not available in the database used (SABI). These data would have been useful to evaluate the changes in trends that are taking place in the health sector due to the technological revolution and economic policies affecting it. Practical implications: The health sector is one of the pillars on which society is based, and therefore knowing detailed economic and financial information allows us to make appropriate decisions, both on the hospital level and in terms of the economic policies of governments. Social implications: This study provides evidence of the financially relevant indicators that healthcare companies must control for their survival and to provide proper service to society in general. The research also identifies non-financial variables that contribute to improving the profitability of hospital companies, while also having a good impact on society. Originality/value: To indicate financial and non-financial measures to improve the profitability of hospital companies at a time of technological innovation and austerity.

Empirical study of agricultural market in Saratov region

The article presents the results of a sociological survey of Saratov agricultural commodity producers aimed at identifying barriers to technological modernization of agricultural production and actual directions for improving state support for demand for agricultural machinery. The results of the research showed that the agricultural machinery market is characterized by high growth potential and import substitution opportunities, but there are significant limitations to development on the part of effective demand and inefficient mechanisms of state support. The rating of the demand for types of equipment in 2016 - 2017 is given. The assessment of the competitiveness of domestic brands of machinery and the dependence of the market on imported machinery is given. Conclusions are made about the peculiarities and tendencies of changing consumer requirements of agricultural commodity producers. There is a significant differentiation of consumer behavior of large, medium and small enterprises. Particular attention is paid to the analysis of barriers to market development and the effectiveness of instruments for its state regulation. It is substantiated that agribusiness first of all expects the strengthening of financial support of the state, which will allow reducing the cost of agricultural machinery. It is emphasized that non-financial measures, expansion of the list of subsidized equipment, simplification of procedures and requirements for credit and leasing, and other measures should become important incentives for increasing demand.